coordinate withholding as appropriate and if necessary. The requirements are largely intertwined, with due diligence serving as the foundation for the reporting and withholding requirements.

Now that the final FATCA Regulations are published and a number of intergovernmental agreements (“IGAs”) have been signed, FFIs must implement practical steps to be FATCA compliant by January 1, 2014.There is no one-size-fits-all compliance plan for FFIs; however, there are many similar and consistent steps FFIs, regardless of location, can take to develop a FATCA compliance program to meet the broad goal of FATCA: to combat offshore tax evasion by U.S. persons and become FATCA compliant.

Before a FFI can become FATCA compliant, a FFI should take certain preliminary steps to determine the impact FATCA will have on the FFI as well as plan the path toward compliance in an efficient and timely manner.

Early in the process, the FFI should develop a FATCA task force or program team that will oversee the day-to-day operations to becoming FATCA compliant. The task force should include representatives from tax, anti-money laundering (“AML”) and customer on-boarding groups, technology, change management and operations as well as, potentially, other stakeholders. The task force will oversee the broad program plan for the FFI and likely report to the FATCA sponsoring executives or steering committee.

FFIs have to determine what, if any, communications they will prepare for both internal and external stakeholders concerning FATCA. An internal awareness and training program should be developed to teach FFI employees about FATCA and its importance to the FFI. The awareness program should start at the highest level to establish the necessary “tone at the top.”

The FFI may also want to prepare a list of questions, a “FAQs of FATCA,” to ensure the FFI’s clients are receiving a consistent message, regardless of where in the world they are located. FFIs should also determine what if any message they want to provide directly to clients or put on their websites, although it is very important that the FFI does not give unintentional tax advice to its clients.

Additionally, some training of FFI staff, including client-facing personnel, could assist with customers of the FFI receiving a clear and consistent message. It may likely be the FFI’s client-facing personnel are already receiving questions from customers regarding FATCA.

FFIs should take a proactive approach to minimize costs and interference with the customer experience at the FFI. With that in mind, prior to developing a FATCA compliance strategy, FFIs should conduct an assessment of the impact FATCA will have on the FFI by collecting information relating to:

Number and activity of each legal entity and/or business line;

Products and services offered by the business line;

Types and volume of accounts;

Relevant policies and procedures; and

Identification of information technology (“IT”) systems and databases that maintain relevant information and may require updates.

The FFI should also determine what past interactions it has had with the IRS or home country tax authority relating to information reporting on their customers. FFIs may be able to leverage past reporting for FATCA compliance.

FFIs around the globe may rely on other parties to take on certain responsibilities. For example, a foreign fund may outsource some or all of its asset custody, compliance and regulatory functions, transfer agency services and/or distribution. In this case, the FATCA compliance program will only be as strong as the weakest link.

Coordinating and ensuring all relevant parties are working towards FATCA compliance will be important since a FATCA compliance failure on behalf of an agent of the FFI can be construed as a failure by the FFI itself. Asking questions of the FFI’s third-party service providers will be an important early step. If a third-party service provider is not working towards FATCA compliance, the FFI may want to re-assess their relationship and engagement with that party.

After the impact assessment is complete, the FFI will need to plan a path forward that not only makes all of the information technology systems and policy changes, but also develops a working corporate governance structure and functioning compliance program. …

Chapter contributors:

Richard Kando, CPA (New York) is a Director at Navigant Consulting and served as a Special Agent with the IRS Criminal Investigation Division where he received the U.S. Department of Justice – Tax Division Assistant Attorney General’s Special Contribution Award.

Jeffrey Locke, Esq. is Director at Navigant Consulting. Prior to joining Navigant, he served as an assistant New York state attorney general in the Criminal Prosecutions Bureau and worked in the prosecutor’s office for the United Nations in Kosovo.

The Foreign Account Tax Compliance Act (“FATCA”) provides for withholding taxes to enforce reporting requirements on specified foreign accounts owned by specified U.S. persons or by U.S. owned foreign entities.

FATCA requires specified U.S. persons (U.S. citizen, residents and certain non-resident aliens) and specified domestic entities to report interests in specified foreign financial assets (SFFAs) if the aggregate value of those assets exceeds certain threshold. The regulations apply to domestic entities formed or availed of to hold, directly or indirectly, specified foreign financial assets. These specified entities include certain closely held corporations and partnerships that meet certain conditions and aggregation rules. Specified entities include domestic trusts if they meet certain criteria and exceed certain reporting threshold.

A U.S. owned foreign entity is an entity with one or more substantial U.S. owners. With certain exceptions, a substantial U.S. owner is any U.S. person with greater than 10% direct or indirect ownership interest in the foreign entity.

FATCA applies to U.S. persons who have specified foreign financial assets (SFFAs) whose value exceeds certain thresholds. The IRS announced in January 2013 that reporting by domestic entities with interests in specified foreign financial assets will not be required to file the IRS reporting form for FATCA, Form 8938, until after the date specified by final regulations, which will not be earlier than taxable years beginning after December 31, 2012.1

Entities and trusts are very different under U.S. law. Entities include partnerships, limited liability companies (LLCs), international business companies (IBCs), foundations, usufructs, and corporations. In entities, the title to the property owned is not divided.

In a trust, however, U.S. law splits the ownership of the title into two parts, legal and equitable. The trustee of the trust owns the legal title for the benefit of the beneficiary, who owns the equitable title. A trust is a relationship, not an entity, and is treated differently under both the existing QI rules and FATCA.

Specified Foreign Financial Assets (SFFAs)

Financial Accounts

The most common type of SFFA that banks will encounter is a financial account such as any depository or custodial account that is maintained by an FFI.2 A financial account also includes non-publically traded equity or debt interest in a depository or custodial institution, an insurance company, or an investment entity.3 …

Moreover, a financial account includes a non-publically traded equity or debt interest in a holding company or treasury center in an expanded affiliated group [See infra. Chapter 8]. This applies if the holding company or treasury center has at least one investment entity or passive NFFE and the income of the investment entity or passive NFFE in the group exceeds 50% of the group’s aggregate income.4 …

Assets

SFFAs include assets not held in an account. Stocks and securities issued by a non-U.S. person that are held for investment are SFFAs whether they are held in an account with a FFI or not. The same holds true for capital or profits interests in a foreign partnership, any form of debt issued by a non-U.S. person, or a beneficial interest in a foreign trust, foreign estate, or foreign entity. A litany of financial instruments collectively referred to as “swaps” are also SFFAs whether held in an account or not. Options and derivative instruments that have any non-U.S. parties or are issued by a non-U.S. issuer are also SFFAs.5 …

Exemptions from SFFA Definitions

FATCA does provide exemptions. An interest in a foreign security or social insurance program is not a SFFA. A stock of precious metals held in a foreign safe deposit box is not a SFFA. Any security or partnership interest used or held in the conduct of normal trade or business is considered not to be held for investment under FATCA. Stock, however, cannot be considered to be held in the conduct of normal trade or business for purposes of FATCA. Therefore, foreign stock is a SFFA.6 …

Example of SFFA

To clarify what may be considered an SFFA, consider the following example. Mr. Smith, a U.S. person resident in the U.S., has $1 million in a Swiss bank account. He owns a partnership interest in a hedge fund established in the Cayman Islands, and directly owns 5,000 shares of a publically traded Japanese corporation, JapanCo. He also has social security benefits in a foreign country. …

7. Foreign social security or social insurance programs are not specified as FFA, so they are not subject to FATCA reporting. Instructions to IRS Form 8938, Statement of Specified Foreign Financial Assets, p. 4.

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The LexisNexis® Guide to FATCA Compliance was designed in consultation, via numerous interviews and meetings, with government officials, NGO staff, large financial institution compliance officers, investment fund compliance officers, and trust companies, in consultation with contributors who are leading industry experts. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions. A sample chapter from the 25 is available on LexisNexis: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

Contributing FATCA Expert Practitioners

Kyria Ali, FCCA is a member of the Association of Chartered Certified Accountants (“ACCA”) of Baker Tilly (BVI) Limited.

Michael Alliston, Esq. is a solicitor in the London office of Herbert Smith Freehills LLP.

Amanda Castellano, Esq. spent three years as an auditor with the Internal Revenue Service.

Luzius Cavelti, Esq. is an associate at Tappolet & Partner in Zurich.

Bruno Da Silva, LL.M. works at Loyens & Loeff, European Direct Tax Law team and is a tax treaty adviser for the Macau special administrative region of the People’s Republic of China.

Prof. J. Richard Duke, Esq. is an attorney admitted in Alabama and Florida specializing over forty years in income and estate tax planning and compliance, as well as asset protection, for high net wealth families. He served as Counsel to the Ludwig von Mises Institute for Austrian Economics 1983-1989.

Dr. Jan Dyckmans, Esq. is a German attorney at Flick Gocke Schaumburg in Frankfurt am Main.

Arne Hansen is a legal trainee of the Hanseatisches Oberlandesgericht (Higher Regional Court of Hamburg), Germany.

Mark Heroux, J.D. is a Principal in the Tax Services Group at Baker Tilly who began his career in 1986 with the IRS Office of Chief Counsel.

Rob. H. Holt, Esq. is a practicing attorney of thirty years licensed in New York and Texas representing real estate investment companies.

Richard Kando, CPA (New York) is a Director at Navigant Consulting and served as a Special Agent with the IRS Criminal Investigation Division where he received the U.S. Department of Justice – Tax Division Assistant Attorney General’s Special Contribution Award.

Denis Kleinfeld, Esq., CPA. is a renown tax authoroverfour decades specializing in international tax planning of high net wealth families. He is Of Counsel to Fuerst Ittleman David & Joseph, PL, in Miami, Florida and was employed as an attorney with the Internal Revenue Service in the Estate and Gift Tax Division.

Richard L. Knickerbocker, Esq. is the senior partner in the Los Angeles office of the Knickerbocker Law Group and the former City Attorney of the City of Santa Monica.

Saloi Abou-Jaoude’ Knickerbocker Saloi Abou-Jaoude’ Knickerbocker is a Legal Administrator in the Los Angeles office of the Knickerbocker Law Group concentrated on shari’a finance.

Jeffrey Locke, Esq. is Director at Navigant Consulting.

Josh Lom works at Herbert Smith Freehills LLP.

Prof. Stephen Polak is a Tax Professor at Thomas Jefferson School of Law’s International Tax & Financial Services Graduate Program where he lectures on Financial Products, Tax Procedure and Financial Crimes. As a U.S. Senior Internal Revenue Agent, Financial Products and Transaction Examiner he examined exotic financial products of large multi-national corporations. Currently, Prof. Polak is assigned to U.S. Internal Revenue Service’s three year National Research Program’s as a Federal State and Local Government Specialist where he examines states, cities, municipalities, and other governmental entities.

Dr. Maji C. Rhee is a professor of Waseda University located in Tokyo.

Jean Richard, Esq. a Canadian attorney, previously worked for the Quebec Tax Department, as a Senior Tax Manager with a large international accounting firm and as a Tax & Estate consultant for a pre-eminent Canadian insurance company. He is currently the Vice President and Sr. Wealth Management Consultant of the BMO Financial Group.

Michael J. Rinaldi, II, CPA. is a renown international tax accountant and author, responsible for the largest independent audit firm in Washington, D.C.

Edgardo Santiago-Torres, Esq., CPA, is also a Certified Public Accountant and a Chartered Global Management Accountant, pursuant to the AICPA and CIMA rules and regulations, admitted by the Puerto Rico Board of Accountancy to practice Public Accounting in Puerto Rico, and an attorney.

Hope M. Shoulders, Esq. is a licensed attorney in the State of New Jersey whom has previously worked for General Motors, National Transportation Safety Board and the Department of Commerce.

Jason Simpson, CAMS is the Director of the Miami office for Global Atlantic Partners, overseeing all operations in Florida, the Caribbean and most of Latin America. He has worked previously as a bank compliance employee at various large and mid-sized financial institutions over the past ten years. He has been a key component in the removal of Cease and Desist Orders as well as other written regulatory agreements within a number of Domestic and International Banks, and designed complete AML units for domestic as well as international banks with over three million clients.

Dr. Alberto Gil Soriano, Esq. worked at the European Commission’s Anti-Fraud Office in Brussels, and most recently at the Legal Department of the International Monetary Fund’s Financial Integrity Group in Washington, D.C. He currently works at the Fiscal Department of Uría Menéndez Abogados, S.L.P in Barcelona (Spain).

Mauricio Cano del Valle, Esq. is a Mexican attorney who previously worked for the Mexican Ministry of Finance (Secretaría de Hacienda) and Deloitte and Touche Mexico. He was Managing Director of the Amicorp Group Mexico City and San Diego offices, and now has his own law firm.

John Walker, Esq. is an accomplished attorney with a software engineering and architecture background.

Prof. William Byrnes was a Senior Manager then Associate Director at Coopers & Lybrand, before joining academia wherein he became a renowned author of 38 book and compendium volumes, 93 book & treatise chapters and supplements, and 800+ articles. He is Associate Dean of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.

Dr. Robert J. Munro is the author of 35published books is a Senior Research Fellow and Director of Research for North America of CIDOEC at Jesus College, Cambridge University, and head of the anti money laundering studies of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.